1.Read of the Weekend…$700B BBB Bonds in 2008…$3Trillion 2018
Barrons
Ray Kennedy, a high-yield portfolio manager at Hotchkis & Wiley, notes that when BBB debt—more than twice the size of the $1.2 trillion in junk debt—falls, the high-yield market expands. Some investors, such as certain insurance companies, aren’t allowed to hold junk and will become “forced sellers,” he says, intensifying the downdraft. Only 10% of the junk market is composed of bonds that originally were investment-grade but later were downgraded to junk. That’s far below the median of 15.5% and the historical peak of 32% in 2002-03. So, a large influx of fallen angels would be far from unprecedented.
In a crunch, investors trying to go up the ratings scale would “have a limited pool of choices,” warns Joseph Kalish, chief global macro strategist at Ned Davis Research Group. Higher-quality credits, such as AA or AAA-rated bonds are now just some 10% of the investment-grade universe, versus 20% to 25% in 1999-2000, he says. Investors could turn to U.S. Treasuries but would have to give up over one percentage point of yield. That’s significant in the fixed-income world.
Where the Bond Market’s Next Big Problem Could Start
By
Vito J. Racanelli
https://www.barrons.com/articles/where-the-bond-markets-next-big-problem-could-start-1534536183
